A PROJECT REPORT ON DIVIDEND POLICY AND ITS IMPACT ON SHARE PRICES OF THE COMPANY Submitted to

In requirement of partial fulfillment of Master of Business Administration (MBA) Submitted on

Submitted by

PREFACE
As a part of the curriculum of the MBA Program of the _________________, the students are required to undergo project work in addition to their theoretical study so as to enable them to have the knowledge of the practical aspect of the Business Administration.

As students of management it is learning experience to analyze an industry. It is the most essentials tools for us to expose our skill as a future responsible managerial post. So, I decided to take a project on dividend policy and its impact on share prices. It helps us to develop our skill & confidence to do better in all respect in management fields.

The knowledge of management is incomplete without knowing the practical application of the theories studied. This grand project provides golden opportunity for all students especially when the management students do not have perfect understanding of the working of unit. The report contains the detail information about dividend policy and its different types, dividend models, legal and procedural aspect and analytical study of different companies.

I have tried my best to get the necessary information for project which includes secondary as well as primary data.

ACKOWLEDGEMENT
This report has been submitting in partial fulfillment of the requirement of the award of M.B.A. from _____________________________________

It is a universal fact that for study of a project in depth, I need the support of many people right from the stage of conceiving the idea to completion of report. It is difficult for a single person to do the job efficiently without interaction & involvement of others.

I take this opportunity to thank ________________________our director ____________ and our inspiration our guides, _______________________ For giving me Valuable Guidance and providing facilities to successfully complete my Grand Project.

I am grateful to other faculty members of ___________for their support whenever required. Discussions with friends also have served to provide sought after information. I am thankful to all our batch mates.

Finally I am thankful to my parents and Lord Almighty without whose blessings tasks are incomplete.

CONTENTS 1.0 Introduction 1.1 The Study 1.2 Objectives of the Project 1.3 Hypothesis 1.4 Methodology 1.5 Limitations of the Study 2.0 Theoretical Aspects 2.1 Terms of Dividend 2.2 Dividend and Retained Earnings. 2.3 Forms of Dividend 2.4 Dividend Policy & its different types 2.5 Considerations in Dividend Policy 2.6 Legal, Contractual and internal constraints 2.7 Dividends Models 2.8 Legal and Procedural aspects. 2.9 Factors affecting share prices 3.0 Analytical study of selected companies 3.1 Shipping Corporation of India 3.2 ONGC 3.3 Infosys Technologies Ltd 3.4 Reliance Industries Ltd 3.5 State Bank of India 3.0 Conclusion 4.0 Bibliography 43 48 54 63 79 91 92 14 17 19 22 25 27 29 37 39 5 6 7 8 12

1. 1 INTRODUCTION

One of the major objectives of any firm is to earn profits and to the extent possible try to maximize profits. Having earned sufficient profits the firm may decide to go for distribution of profits among the owners i.e. the shareholders, if the firm is a corporate entity. In companys shareholders are real entrepreneurs so distributing earnings must compensate them. Different types of investors expect investing their savings with different objectives. But majority of profit takes various forms such as payment of cash dividend, giving of bonus shares to the existing shareholders, issuing right shares at a considerably lower than the market price to the shareholders, issuing convertible debentures etc.. The firm or a corporate entity may take decision regarding distribution of profit in the context of various considerations like preferences of shareholders and the potential growth of the company in future. Various firms are working under different situations and therefore their distribution of dividend differs widely. It is therefore to study how corporate entities take such decisions.

The Indian Economy consists of wide variety of industrial sectors like steel, chemical, cement, automobiles, pharmaceutical, FMCGS, textile etc.. It was not possible to take a very big size of sample for study, as data would not be available for all of them for comparison. Hence, five companies were selected and an attempt is made to study their dividend policies and their impact on their share prices.

1.2 OBJECTIVES OF THE STUDY

The division of net earnings of a firm between dividend payments and retained earnings is a major financial decision. If the principal objective of a corporate financial management is to maximize the market value of equity shares, the question that naturally arises is: what is the relationship between dividend policy and market price of equity shares? This is one of the most controversial and unresolved questions in corporate finance.

The present study is basically focused on the following: y y y y y Nature and types of dividend polices Determinants of dividend policy Implementation of Dividend Models in the units concerned Analytical study of the units Impact of dividend policies on the share prices of the units concerned

1.3 HYPOTHESIS

On the basis of above mentioned objective the following Hypothesis have been framed. 1) The dividend policies of companies of the same level and belonging to the same industry or sector tend to be the same. 2) There is no particular or common factor or see of factors that significantly have an impact on the dividend policy of all companies belonging to the same industry in the same direction or proportion. 3) There is no relationship between earnings and dividend per share and there is no proportionality between earnings and dividend payouts. 4) Dividend has no influence on the market price of stocks i.e. dividend is irrelevant and has no effect on the price of a firm.

1.4 SCOPE OF THE STUDY AND METHODOLOGY

To test the above mentioned hypothesis of dividend policy and to understand the dividend behaviors of the firms under study various statistical tools have been used in addition to ratio analysis.

The study has examined individually the various theoretical determinates of dividend policy such as profitability, size of the firm, leverage, growth and stability of earrings, liquidity, taxation, pattern of shareholding etc.

1.

Sample

The methodology of the study was fairly simple. I have selected different five companies from different sectors. Some of them have shown excellent results and some other has moderate ones.

The selected companies are as follow

y y y y y

STATE BANK OF INDIA SHIPPING CORPORATION OF INDIA RIL INDUSTRIES ONGC. INFOSYS.

2.

Selection of Models:

For the study of dividend and its impact on share prices four models have been selected. Analysis of data has been done on the basis of this model. The selected models are as follows: y y y y y Yield Value Method Intrinsic value Method Walter Model Gordan Model Traditional Model

For the calculation purposes following arithmetic formulas are taken into consideration:

1) Yield Value Method Yield value = Rate of Dividend (%) X Paid up value of equity share Expected Rate of Dividend Here, Expected rate of Dividend = Interest Rate on Bank Loans

Rate of Dividend

= Divisible Profit (PAT) X 100 Total Paid up capital

2) Intrinsic Value Method Intrinsic Value = Net Assents No. of equity shares

3) Walter Model Po = D + (E D) r/k k where, Po = Expected Market Price as per Walter Model D = Dividend per share E = Earnings per share R = Rate of return (Average Growth Rate ) K = Cost of Capital (Interest Rate on Bank Loans )

4) Gordon Model Po = d0 (1 + g) Kg Where, Po = Expected Market Prices as per Gordon Model D0 = Dividend per share G = Growth Rate (Average Dividends) K = Cost of capital (Interest Rate on Bank Loans)

5). Traditional Model Po = m ( D + E / 3) Where, Po = Expected Market Price according to Traditional Model M = multiplier

D = Dividend per share E = Earning per share

3. Collection of Data

There are two main sources of data collection: y y Primary source Secondary source

1.5

LIMITATIONS OF THE STUDY

The study has several limitations. Firstly, the sample is small as only four cement companies are selected for analysis and interpretation of data.

Secondly, I had not the fullest exposure to the various research methodologies available and hence the available handy methodology was chosen.

Thirdly, the analysis is conduced in terms of only a few models and the conclusions arrived at were evaluated wit the data collected from various sources. As a result there are certain discrepancies in the predictions of the models and the actual data collected.

I would like to pursue the subject later for the in depth study.

THEORITICAL ASPECTS

2.1

WHAT IS DIVIDEND

If you have ever owned stock and most of us have, in the present economic boom you are probably familiar with the basic concept of a dividend. Companies pay dividend on their stocks as a means of sharing profits with shareholders. Without dividends, the only way to receive income from the stock is to sell them at a profit. Dividends are payments made to stockholders from a firms earnings, whether those earnings were in the current period or in previous periods.

The factors that companies may consider before declaring dividends includes: future expansion plans and capital requirements, profit earned during the financial year, overall financial condition as well as cost of raising funds from alternative sources, liquidity, applicable taxes (including tax on dividend), exemptions under tax laws available to various categories of investors from time, and money market conditions.

A major decision of financial management is the dividend decision in the sense that the firm has to choose between distributing the profits to the shareholders and ploughing them back into the business.

The Dividend decision, in corporate finance, is a decision made by the directors of a company. It relates to the amount and timing of any cash payments made to the companys stockholders. The decision is an important one for the firm as it may influence its capital structure and stock prices. In addition, the decision may determine the amount of taxation that stockholders pay.

Ex-Dividend: The date on or after which a security is traded without a previously declared dividend or distribution. After the ex-date, a stock is said to trade exdividend.

Interim Dividend : A dividend payment made before a companys AGM and final financial statements. This declared dividend usually accompanies the companys interim financial statements.

Final Dividend : The final dividend is declared at a companys Annual General Meeting (AGM) for any given year. This amount is calculated after statements are recorded and the directors are aware of the companys profitability and financial health.

IMPORTANT DATES TO REMEMBER FOR DIVIDEND

Declaration Date : The declaration date is the day the Board of Directors announces their intention to pay a dividend. On this day, the company creates a liability on its books. It now owes the money to the stockholders. On the declaration date, the Board will also announce a date of record and a payment date.

Date of record: Shareholders who properly register their ownership on or before this date will receive the dividend. Shareholders who are not registered as of this date will not receive the dividend. Registration in most countries is essentially automatic for shares purchased before the ex-dividend date.

Ex-dividend date: Is set by the exchange where the stock is traded, several days (Usually two) before the date of record, so that all trades made on previous dates can be properly settled and the shareholder list on the date of record will accurately reflect the current owners. Purchasers buying before the ex-dividend date will receive the dividend. The stock is said to trade cum dividend on these dates. The stock trades exdividend on these dates.

Payment Date: The date when the dividend checks will actually be mailed to the shareholders of a company.

2.2 DIVIDEND PAYOUT AND RETAINED EARNING

Dividend is paid out of the funds available with the firm. An important aspect of dividend policy is to determine the amount of earnings to be distributed to shareholders in the form of dividend and the amount to be retained for future growth. Retained earnings are a significant internal source of financing the growth of the firm. There is an inverse relationship between retained earnings and cash dividends. Larger the retention, lesser the dividends. Smaller the retention, larger the dividends.

The major decision of financial management is regarding the dividend decision. The firm has to choose between distributing the profits among the shareholders and ploughing them back into the business. The effect of the decision will be on shareholders wealth. The firm should consider which alternative is consistent with the goal of wealth maximization of the shareholders.

Whether dividends are paid out or earnings are retained, will depend upon the availability investment opportunities to the firm. If a firm has sufficient investment opportunities, it will retain the earnings to finance them and if acceptable investment opportunities are not adequate, the earning would be distributed to the shareholders. The investment opportunities are related to return on investment.

The relationship between the return on the investment ( r ) and the cost of capital (k ) will influence investment opportunities. If r exceeds k, a firm has acceptable investment opportunities, so firm will retain the earnings to finance the project. If retained were more than requirements, the excess earnings would be distributed to the

shareholders in the form of cash dividends. Thus, the amount of dividend will fluctuate from year to year depending upon the investment opportunities.

With abundant opportunities, the dividend payout ratio (D/P ratio, i.e. the ratio of the dividends to net earnings) would be zero. When there are no profitable opportunities, the D/P ratio will be 100. So long as the firm is able to earn more than the cost of capital (ke) the investors would be satisfied with the firm retaining the earnings. In contrast, if the return were less than the ke, the investors would prefer to receive earnings in the form of dividends.

2.3

FORMS OF DIVIDEND

1.

Cash Dividend

Cash dividends are those paid out in form of real cash. It is a form of investment income or investment interest and is taxable in the year it is paid. It is the most common method of sharing corporate profits.

Reasons why companies avoid paying cash dividends:

Companies have often avoided paying cash dividends for two reasons: 1) Management and the board may believe that the money is best re-invest into the company for the purpose of research and development, capital investment, expansions, etc. 2) At times when dividend are paid, shareholders suffer from double taxation of those dividends i.e. firstly the company pays income tax to the government when it earns any income, and then when the dividend is paid, the individual shareholder pays income tax on the dividend payment.

Both the above situations are often used as justification retaining earnings, or for performing a stock buyback.

If we take a look globally, Microsoft is an example of a company that has historically been a proponent of retaining earnings. It did so right its IPO in 1986 until the year 2003, when it declared it would start paying dividends. By this point Microsoft had accumulated over US$ 43 billion in cash. And there had been increasing irritation

from stockholders who believed this large pile of cash should lie in their hands and not in the companys originally, the official reason to amass this large sum was to create a reserve for Microsofts legal battles: Since then, Microsoft appears to have changed tactics such that the reserve is not as necessary.

2..

Stock dividends or Scrip dividends:

Stock dividends are those paid out in the forms of additional stock shares of the issuing corporation, or other corporation ( for example, its subsidiary corporation )

They are usually in proportion to shares owned. For instance, for every 100 shares of stock owned, 5% stock dividend will yield 5 extra shares. This is very similar to a stock split in that it increases the total number of shares while lowering the price of each share and does not change the market capitalization.

A practical example of stock dividends.

Suppose Reliance Industries Ltd has 1,00,000 shares. The company has five investors who each own 20,000 shares. The stock currently trades at Rs. 100 per share, giving the business a market capitalization of Rs. 1 crore. Management now decided to issue a 20% stock dividend. It prints up an additional 2000 shares of the stock (20% of 1 lac) and sends these to the shareholders based on their current ownership. All of the investors own 20,000 or 1/5 of the company, so they receive 4000 of the new shares (1/5 of the 20000 new shares issued )

Now, the company has 1,20,000 shares outstanding and each investor owns 24000 shares of the stock. The 20% dilution in value of each share, however, results in the stock price falling to rs. 83.33. heres the important part: the company and the investors are still in the exact same position. Instead of owning 20,000 shares at Rs. 100, the now own 24,000 shares at Rs. 83.33. The companys market capitalization is still Rs. 1 crore.

3. Property dividends or dividends in kind:

Property dividends are those paid out in form of assets from the issuing corporation, or other corporation (e.g. its subsidiary corporation )

This form of dividend is rarely paid, but whenever they are paid, they are paid in the form of products or services provided by the corporation.

2.4 DIVIDEND POLICY AND ITS DIFFERENT TYPES

In simple terms dividend policy can be termed as a Win-Win policy

Dividend policy of a firm has implications for investors, lenders as well as other stockholders. For investors, dividends whether declared todays or accumulated and provided at a later date are not only a means of regular income, but also dependent on the amount of dividend that they can offer to shareholder because more dividends may also have interest in the amount of dividend a firm declares because, more dividend paid would result into less amount available for servicing and redemption of their claims.

A firm can choose from three different dividends policies :

A. Constant Dividend per share B. Constant payout ratio C. Constant dividend per share plus extra dividend

A).

Constant Dividend per share.

In case of constant dividend per share, a company follows a policy of paying a certain fixed amount per share as dividend. For instance, on a share of face value of rs. 100 a firm may pay a fixed amount of Rs. 15 as dividend. This amount would be paid year, irrespective of the level of earnings of the firm. In fact, when a company follows such a dividend policy, it will pay dividends to the shareholders ever when it suffers losses.

From the table it can be observed that while the earnings may fluctuate from year to year, the DPS remains constant. To be able to pursue such a policy a firm whose earnings are not stable would have to make provisions in years when earnings are higher for payment of dividend in lean years. Such firms usually create a reserve for dividends equalization. The balance standing in this fund is normally invested in such assets as can be readily converted into cash.

B) Constant Pay Out Ratio

When a company applies constant payout ratio, it pays a constant percentage of net earnings as dividends to the shareholders. In other words, constant dividend payout ratio implies that percentage of earnings paid out each year is fixed. Accordingly, when the earnings of a firm decline substantially or there is a loss in the given period, the dividends would also be lower.

C) Constant dividend per share plus extra dividends:

Under this policy, a firm usually pays a fixed dividend to the shareholders and in years of marked propensity, additional or extra dividend is paid over and above the regular dividend. As soon as normal conditions return, the firm cuts the extra dividend and pays the normal dividend per share.

Dividend Payout (D/P) Ratio : The percentage of net income that is paid out in the form of dividend is known as the dividend payout ratio. A dividend policy involves the decision of either to pay out the

earning in form of dividend or retain it in the business. The payment of dividend results in the reduction of cash and is therefore a depletion of the total asset. Thus, dividend imply outflow of cash and lower future growth. The optimum dividend policy should strike a balance between current dividends and future growth of company because its inverse, the retention ratio is important in projecting the growth of company because its inverse, the retention ratio ( the amount not paid out to shareholders in the form of dividends ), can help project a companys growth.

Calculating Dividend Payout Ratio:

Suppose the cash flow statement of Reliance Industries Ltd shows that the company paid Rs 1 crore in dividends to shareholders, in the year 2004. The income statement for the same year shows the business had reported a net income of Rs. 3 crore. To calculate the dividend payout ratio, the investor would do the following:

Rs. 1 crore dividend paid ---------- (divided by ) ----------------Rs 3 crore reported net income The answer, 33.33% tells the investors that Reliance Industries Ltd. Paid out nearly thirty four percent of its profit to shareholders over the course of the year.

2.5 CONSIDERATIONS IN DIVIDEND POLICY

Dividend policy is affected by various owner and capital Market considerations.

Owners considerations :

1) Tax Status of the shareholders:

If a firm has a large percentage of owners who are in the high tax brackets, its dividend policy should seek to have higher retentions. Such a policy will provided its owners with income in the form of capital gains as against the individuals in a high tax bracket. On the other hand, if a firm has a majority of low income shareholders who are in a lower tax bracket they would probably favor a higher payout of the earnings because of the need for current income and the greater certainty associated with receiving the dividend now, instead of less certain capital gains later.

2) Opportunities:

The firm should not retain funds if the rate of return earned by it would be less than one, which could have been earned by the investors themselves from external investments of funds. Such a policy would obviously be detrimental to the interests of shareholders. It is difficult to ascertain the alternative investment opportunities of each of its shareholders and therefore the alternative investment opportunity rate. Therefore, in formulating dividend policy the evaluation of the external investment opportunities of owners is very important.

3) Dilution of Ownership

The financial manager should recognize that a high dividend payout ratio may result in the dilution of both control and earnings for the existing equity holders. Dilution in earnings results because low retentions may necessitate the issue of new equity shares in the future, causing an increase in the number of equity shares outstanding and ultimately lowering earnings per share and their price in the market.

Capital Market Considerations:

In case a firm has easy access to the capital market, either because it is financially strong or large in size, it can follow a liberal dividend policy. However if the firm has only limited access to capital markets, it is likely to adopt low dividend payout ratios. Such firms are likely to rely more heavily on retained earnings as a source of financing their investments.

Firms which lean heavily on financial institutions from procuring funds, declare a minimum dividend so that they can remain on the eligible list of these institutions. It is because in general most financial institutions are prohibited from buying shares in companies, which pay no dividends a company should be paying dividends at a certain minimum rate for at least some specified number of year. Since such institutions are significant buyers of corporate securities some firms that would otherwise have not paid any amount of dividend, would pay some dividend so that remain in the eligibility list.

2.6

LEGAL, CONTRACTUAL AND INTERNAL CONSTRAINTS

AND RESTRICTIONS:

Legal requirements pertain to capital impairment, net profits and insolvency. In case of the capital impairment rules there is a limit to the amount of cash dividend that a firm can pay. A firm cannot pay dividends out of its paid up capital, otherwise there would be a reduction in the capital which would adversely affect the security of its lenders. In case of net profits, there is a restriction to the dividend to be paid out of the firms current profits plus past accumulated retained earnings. Alternately, a firm cannot pay cash dividend greater than the amount of current profits plus the accumulated balance of retained earnings. In case of solvency, a firm is said to be insolvent in two cases: first, when its liabilities exceed the assents and second, when it is unable to pay its bills. It the firm is currently insolvent in either case, it is prohibited from paying dividends. Similarly, a firm would not pay dividend if such a payment leads to insolvency of other type. The rule is to protect the creditors by prohibiting the liquidation of near bankrupt firms through cash dividend payments to the equity owners. Under contractual requirements, important restrictions on the payment of dividend may be accepted by a company when obtaining external capital either by a loan agreement a debenture, a preference share agreement or a least contract.

Internal constraints would include liquid assets, growth prospects, and financial requirements, availability of funds, earnings stability and control.

In case of liquid assets once the payments of dividend is permissible on legal and contractual grounds, the next step is to ascertain whether the firm has sufficient cash funds to pay cash dividends. It may well be possible that the firms earnings are substantial but the firm may be short of funds.

2.7 DIVIDEND MODELS

There are four models regarding dividends impact on share prices. They are as follows: 1. Traditional Model 2. Walter Model 3. Gordon Model 4. Modigliani & Miller Model

1) Traditional Model :

The traditional position expounded eloquently by Graham and Dodd holds that the stock market places Considerably more weight on dividends than on retained earnings. According to them : the considered and continuous verdict of the stock market is overwhelmingly in favor of liberal Dividends as against niggardly ones. The common stock investor must take this judgment into account in the valuation of stock for purchase. It is now becoming standard practice to evaluate common stock by applying one multiplier to that portion of earnings paid out in dividends and a much smaller multiplier to the undistributed balance. Their view is expressed quantitatively in the following valuation model advances by them :

P = m (D + E / 3)

Where, P = Market price per share D = dividend per share E = earnings per share M = multiplier

According to this model, in the valuation of shares the weight attached to dividends is equal to four times the weight attached to retained earnings. This is clear from the following version of e.q. (21.4) in which E is replaced by (D + R)

P = m (D + D + R / 3)

The weight provided by Graham and Dodd are based on their subjective judgment and not derived from objective, empirical analysis. Notwithstanding the subjectivity of these weights, the major contention of the traditional position is that a liberal payout policy has a favorable impact on stock price.

Empirical Evidence Advocates of the traditional position cite the results of cross-section regression analyses like the following

Price = a + b Dividend + c Retained Earnings

Typically, in such a regression analysis the dividend coefficient, b, is much higher than the retained earnings coefficient, c. so the advocates of traditional position claim

that their hypothesis is empirically vindicated. However, a careful look at the above regression suggests that the conclusion reached by the traditionalists is unjustified for the following reasons:

1. Equation (21.6) is misspecified because, inter alia, it omits risk which is an important determinant of price. A better specified regression equation is :

Price = a + b dividend + c Retained Earnings + d Risk

In this equation b and c are expected to be positive whereas d is expected to be negative. Because risk and dividend are inversely correlated the higher the level of risk the smaller the dividend and vice versa-the dividend variable in Eq. (21.6) will capture the effect of risk as well. Thus the omissions of risk will impart an upward bias to b, the coefficient of dividend.

2. Measurement error distorts the results. It is well known that the measurement of earnings almost invariably subject to error. The dividend figure, however, is given precisely. So the measurement error in earnings is fully transmitted to retained earnings which are simply earnings minus dividends.

To sum up, omission of risk imparts an upward bias to b, the coefficient of dividend are measurement error characterizing retained earnings imparts a down-ward bias to c, the coefficient of retained earnings. Hence the claim of traditionalists that b > c implies that a high payout ratio increases stock value cannot be vindicated.

2) Walter Model :

James Walter has proposed a model of share valuation which supports the view that the dividend policy of the firm has a bearing on share valuation. His model is based on the following assumptions: The firm is an all-equity financed entity. Further, it will rely only on retained earnings finance its future investments. This means that the investment decision is dependent on the dividend decision. The rate of return on investment is constant. The firm has an infinite life.

Valuation Formula : Based on the above assumption, Walter put forward the following valuation formula :

P = D + E D) r / k K Where, P = price per equity share D = dividend per share E = earnings per share R = internal rate of return of investments K = cost of capital The first component is the present value of an infinite stream of dividends: the second component the present value of an infinite stream of returns from retained earnings.

Thus, as per Walter Model : A) When the rate of return is greater than the cost of capital (r > k), the price per share increase as the dividend payout ratio decreases. B) When the rate of return is equal to the cost of capital ( r = k ), the price per share does not va with changes in dividend payout ratio. C) When the rate of return is lesser than the cost of capital (r < k), the price per share increase and the dividend payout ratio increases. Thus, Walter Model implies that: A) The optimal payout ratio for a growth firm (r > k) is nil. B) The optimal payout ratio for a normal firm ( r = k) is irrelevant. C) The optimal payout ratio for a declining firm ( r< k ) is 100 percent.

3) Gordon Model :

Myron Gordon proposed a model of stock valuation using the dividend capitalization approach. Here model is based on the following assumptions: A) Retained earnings represent the only source of financing for the firm. B) The rate of return on the firms investment is constant. C) The growth rate of the firm is the product of its retention ratio and its rate of return D) The cost of capital for the firm remains constant and it is greater than the growth rate. E) The firm has a perpetual life. F) Tax does not exist.

Valuation Formula :

P 0 = E1 ( 1 b) K br Where, P0 = price per share at the end of year 0, E1 = earnings per share at the end of year 1, (1 b ) = fraction of earnings the firm distributed by way of dividends, B = fraction of earnings the firm retains, K = the rate of return required by the shareholders. R = rate of return earned on investments made by the firm Br = the growth rate of earnings and dividends. Implications: 1. When the rate of return is greater than the cost of capital (r > k) the price per share increases as the dividend payout ratio decreases. 2. When the rate of return is equal to the cost of capital ( r = k), the price per share does not vary with changes in dividend payout ratio. 3. When the rate of return is lesser than the cost of capital ( r < k), the price per share increases as the dividend payout ratio increases. Thus, Walter Model implies that: A) The optimal payout ratio for a growth firm (r > k) is nil B) The optimal payout ration for a normal firm ( r = k ) is irrelevant. C) The optimal payout ratio for a declining firm ( r < k) is 100 percent.

4) Modigliani & Miller Model :

Modigliani & Miller have advanced the view that the value of a firm depends solely on its earnings power and is not influenced by the manner in which its earnings are split between dividends are retained earnings.

Assumptions :

A. Capital markets are perfect and investors are rational; information is freely available, transactions are instantaneous and costless, securities are divisible and no investor can influence market price. B. Floatation costs are nil. C. There are no taxes. D. Investment opportunities and future profits of firms are known with certain.

The substance of MM argument may be stated as follow: If a company retains earnings instead of giving out as dividends, the shareholder enjoys capital appreciation equal to the amount of earnings retained.

If it distributes earnings by way of dividends instead of retained it, the shareholder enjoys dividend equal in value to the amount by which his capital would have appreciated had the company chose to retain its earnings.

Hence the division of earnings between dividends and retained earnings is irrelevant from the poi of view of shareholders.

P=[D+P]/[1+k] Where, P = market price per share at time 0 D = dividend per share at time 1 P = market price per share at time 1 K = discount rate applicable to the risk class to which the firm belongs

2.8

LEGAL AND PROCEDURAL ASPECT

Legal Aspects

The important provisions of company law pertaining to dividends are described below: 1). Companies can pay only cash dividends (with the exception of the bonus share) 2). Dividends can be paid only out of the profits earned during the financial year after providing for depreciation and after transferring to reserves such percentages of profits are prescribed by law. 3). Due to inadequacy or absence of profits in any year, dividend may be paid out of the accumulated profits of previous year. 4). Dividends cannot be declared for past yeas for which the account has been closed.

Procedural Aspects. The important events and dates in the dividends payment procedure are:

1) Board Resolution: The dividend decision is the prerogative of the board of the Directors. Hence, BOD should in formal meeting resolve to pay the dividend.

2) Shareholder Approval: The resolution of the BOD to pay the dividend has to be approved by the shareholders in the annual General Meeting.

3) Record Date The dividend is payable to shareholder whose name appear in the Register of Members as on the record date.

4) Dividend Payment: Once the dividend declaration has been made, dividend warrants must be posted within 42 day. Within a period of 7 days after the expiry of 42 days. Unpaid dividend must be transfer to a special account opened with a scheduled bank.

2.9 FACTORS AFFECTING SHARE PRICES

The factors that affect the market price of share are discussed under:

1. Demand and Supply The forces of demand and supply have a direct bearing on the prices of various securities on the stock exchange. When the demand for the particular security exceeds its supply, its prices tend to rise. But when the supply is more than the demand, the prices of the securities is likely to fall.

2. Market Trend and Speculative Preferences Different trends come and go in the share market. Speculators generally make trends. Like now day InfoTech Companies shares prices are rising and it is trend now. The activities of speculator often lead to wide fluctuations insecurity prices.

3. Political Developments Political event has a quick impact on stock exchange operations. A change in government and outbreak of civil war, an announcement of a general election and such other disturbances in the country may bring about fluctuations in the prices of securities.

4. Rumors Sometimes to bring liveliness brokers or speculators start spreading rumors. Sometimes there are rumors that some very important personality of a company or of a government had died.

5. Financial Position of the Company When the financial results of a company are good in a particular year the demand for its securities goes up. It is vice versa when financial position is bad. Dividend paid on security depends upon the financial position.

6. Management of the Company Changes in the board of directors or Chief Executive of the Company also influence prices of it securities. When a very prominent person joins as a director of a company the faith of investors the company increases, and the prices of its shares tends to rise. On the other hand, when a high reputed director resigns or retires from Board of Directors of a company, it will have an adverse effect on its share prices.

7. Activities of Financial Institution Operations of financial institutions including the foreign institutions have a significant impact on the securities, when these institutions buy or sell a particular security in large numbers, the prices security goes up or down.

8. Government policy Changes in taxation and other economic policies of the Government have an important bearing of the prices of securities. For instance increase or decrease in excise duty on a product is likely bring down or push up the prices of shares of concerned company.

9. Miscellaneous Factors Stock exchange is such a sensitive barometer that it responses to various types of factors. Change in weather, industrial combinations, trade cycles, budget, and changes in bank rates may have considerable influence on the market prices of various securities.

ANALYTICAL STUDY OF SELECTED COMPANIES

3.1 Company History Shipping Corporation of India

The company was incorporated at Mumbai in 1961. The company was formed on 2nd October 1961 when by virtue of the Shipping Corporation Amalgamation Order, 1961, the Undertaking of the Western Shipping Corporation Ltd., was merged into the eastern Shipping Corporation Ltd., which was renamed The Shipping Corporation of India Ltd.. the corporation is an autonomous body working under the administrative superintendent of the Govt. of India in the Ministry of Transport and Communications. The companys object is Corporation operates cargo passenger cum-cargo and tanker services.

1962 The entire capital is held by the Govt. of India.

1971 4,49,844 shares issued to Govt. against acquisition of shares of Jayanti shipping Co. Ltd.

1972 100 shares issued to Govt. without payment in cash.

1993 The Russian Federation was expected to designate Port of Novorossisk for handling Indo-Russian Cargoes. The Rupee-Rouble inter-se settlement reached advances stage

and was expected to give an impetus to revival of Indo-Russian trade. Equity shares subdivided. 17689540 shares issued for consideration. Other than cash 2366,63,430 No. of equity shares issued to Govt. of India.

1994 During October, the Govt. further disinvested 38,64,600 shares representing 1.37% of paid up capital of the company. Earlier, 5,22,45,900 shares i.e. 18.51% and with this disinvestment, Govt. holding in the Company was reduced to 80.12%. The remaining 19.88% is held by Financial Institutions, banks, Mutual Funds, FIIS.

1997 Shipping Corporation of India Ltd, has signed a MOU with the Union surface transport ministry for the next financial year 1997-98.

1998 SCI and OCC had signed a Memorandum of Understanding (MOU) recently as a precursor to renew the contract for the transportation of crude.

2000 The state-owned Shipping Corporation of India is considering a proposal by Consultancy major PricewaterhouseCoopers (PWC) to hive off its three divisions bulk carrier and tanker, passenger and liner and technical offshore services into three separate companies.

The company will consider the restructuring of SCI by way of a three-way split as recommended by PricewaterhouseCooper (PWC), enabling it to derive a better valuation than it currently does. The government currently holds 80% in SCIL. About 18% is spread among financial institutions and mutual funds. Floating stock in the company is a miniscule one %. The plans for disinvestment.

2002 Government decides on strategic sale of 51% of SCIs equity and has fixed Rs. 800 cr of net worth criterion to SCI. SCI paid all its debt of Rs. 255cr to government before its disinvestment. SCI records 82% dip in the net profit.

2003 SCI declared interim dividend of 30% for the financial year 03. Cabinet committee on disinvestment decides to invite fresh expression of interest (EOL) for disinvestment of 51%. The disinvestment of Shipping Corporation of India (SCI) has been postponed indefinitely though the government continues to be firm on its divestment policies.

2007. SCI is now certified as ISO 9001-2000 compliant by Indian Register of Quality Services (IRQS) from 08.05.2007

2008. The Government of India, conferred Navratna status to SCI on 01.08.2008, leading to further enhanced autonomy and delegation of powers to the Company towards capital expenditure, formation of Joint Ventures, mergers, etc.

SHIPPING CORPORATION OF INDIA: CORELATION BETWEEN MARKET PRICE AND DEVIDEND PER SHARE YEARS X (MARKET PRICE ) 2005 2006 2007 2008 2009 60 93 107 115 125 500 17 4 11 0 13 45 -40 -7 7 15 25 0 8 -5 2 0 4 9 1600 49 49 225 625 2548 Y (DPS) (x-x-) (y-y-) (x-x-)2 (y-y)2 64 25 4 0 16 109 -320 35 14 0 100 -171 (x-x-)(y-y-)

R= -0.35

As per our calculations, the correlation between Market value and dividend per share for the last 5 year is negative. But our observation says that market value of shares increasing in the last 5 years which indicates, company is a growth firm. And thus Walter Model applies.

3.2 Company History Oil and Natural Gas Corporation

Oil and Natural Gas Corporation (ONGC) was set up in 1956 with significant contribution in industrial and economic growth of the country.

1959 In October the Commission was converted into a statutory body by the Oil and Natural Gas Commission Act, 1959. The main objectives of the Commission were to plan, promote, organize and implement programs for the development of oil and natural gas resources and the production and sale of oil and natural gas products. ONGC functions as the primary arm of the Government as regards exploration for and exploitation of Indias petroleum resources. The Companys revenues are derived primarily from the sale of its production of crude oil, natural gas, liquefied petroleum gas (LPG), C2-C3 (ethane-propane) and natural gasoline (NGL). To strengthen reserves accretion portfolio and open up areas of future exploration. ONGC has undertaken an accelerated Program of Exploration with an outlay of Rs. 3958 crores.

1993 Oil and Natural Gas Corporation Limited (ONGC) was incorporated by the Government of India as a public Limited Company under the Companies Act 1956 on 23rd June. The company is engaged in the exploration, development and exploitation of hydrocarbons i.e. Crude oil and natural gas. The company was subsequently converted into a public limited company in June-93 following new liberalized economic policy adopted by the Government of India in

July. 1991 sought to deregulate and delicense the core sector (including petroleum sector) with partial disinvestment of Govt. equity in Public sector undertakings and other measures.

1994 The company acquired the undertaking, business, assents and liabilities of the erstwhile Oil and Natural Gas Commission (the Commission) on 1st February.

1996 The company embarked upon exploration in the deep sea basing on the east and west coast of the country ONGC Videsh Ltd is a wholly owned subsidiary of the company. 3428,53,716 shares issued to the President of India. 1076,440,366 No. of equity shares issued as bonus shares. 66,39,910 No. of equity shears disinsted.

1997 The venture with a private foreign company would be set up with an equity participation of 50 percent each. ONGC Ltd and PGS Ocean Bottom Seismic, a Norwegian company, have signed a Rs 180 crore contract for a three-dimensional ocean bottom cable technique seismic survey over the Mumbai High field.

1998 Oil and Natural Gas Corporation (ONGC) is holding negotiations with Arco, an American Company for setting up a 50:50 joint venture for coal bed methane (CBM) exploration projects.

2000 Oil and Natural Gas Corporation and Oil India Ltd have signed their annual memorandum of understanding (MOUs) with the government for performance targets for 2000-01.

2001 Oil & Natural Gas Corporation Videsh Ltd., the overseas subsidiary of ONGC will sign a 1.7 billion dollar deal with Russian national oil company Rosneft for taking 20 per cent stake in Russian Far East oil and gas field Sakhalin-I, in Mosocow on February 10. As part of its mega restructuring exercise, the Oil and Natural Gas Corporation has introduced a voluntary retirement scheme for trimming its 40,000 strong work force all over the country.

2002 The board of directors of Oil and Natural Gas Corporation (ONGC) has approved the acquisition of the Aditya Birla groups stake in the joint venture Mangalore Refinery and Petrochemicals Ltd (MRPL) Retains top most profit making Public Sector Company (PSU) status. ONGC strikes deal with refiners to sell crude at international prices

ONGC ranked no. 1 among ET 500

2003 Ties up with IOC for supply of crude oil Acquires 37.38% equity stake in Mangalore Refinery & Petrochemicals Ltd (MRPL) ONGC Videsh Ltd. (OVL) purchases 25% stake of Canadian Talisman Energy in Sudan oilfield for 1 million. Retains top sport in market can in ET 500 Company ranked in FT Global 500 list Enters into an MOU with Bharat Petroleum Corporation Ltd (BPCL) for supply of crude oil for a period of two years from April 01, 2002 to March 31, 2004. Hikes stake in Mangalore Refinery & Petrochemicals Ltd (MRPL) to 71.49% from 51.25% Ends its two-year training and consultancy services joint venture with oil refining giant India Oil Corporation. ONGC Disinvestment of 10% Equity by Government of India.

2004 Market capitalizations crosses Rs. 100000 cr The board has approved a proposal to invest Rs 900 cr in a five million tonne C2C3 extraction plan. Finance Minister allows ONGC to buy Mangalore Refinery and Petrochemicals stake. ONGC decides to offer 32 marginal fields to private operators Govt. of India divests 10% stake in the company by selling 14.26 cr shares at a cut-off price of Rs. 750 per share.

Awards Rs 160 cr three year order to supply oil exploration equipment for BHEL The government on March 23 issued Rs 348.6 crore worth of fresh oil bonds to public sector oil companies ONGC and OIL. The bonds carry a coupon rate of 5% for a five year tenor. Oil and Natural Gas Corporation (ONGC) has tied up with the Indian Institutes of Foreign Trade (IIFT) for launching a special MBA course in international business for its middle-level executives.

2006 ONGC internal audit bags ISO 9001 rating.

2007. A Fortune-Global 500 Company, it is not only the largest E&P Company in India but also one of the most valuable companies in India. Platts recognized it as No. 2 E&P Company in the World and 23rd among leading global Energy majors in its Platts Top 250 Global Energy Company Ranking 2007

ONGC : CORELATION BETWEEN MARKET PRICE AND DEVIDEND PER SHARE YEARS X (MARKET PRICE ) 2005 2006 2007 2008 2009 395 566 723 871 930 3485 27 30 45 38 30 170 -302 -131 216 174 233 -7 -4 11 4 -4 91204 17161 676 30276 54289 193606 Y (DPS) (x-x-) (y-y-) (x-x-)2 (y-y)2 49 16 121 16 16 218 2114 524 286 686 -932 2688 (x-x-)(y-y-)

R = 0.41

As per our calculation, the correlation between Market value and dividend per share for the last year is positive and it is less than 0.50. But my observation says that market value of share is increasing in last 5 year which indicated company is a growth firm.

3.3 Company History Infosys Technologies

1981 On July 2nd the company was incorporated as Infosys Consultants Private Limited at Mumbai. INFOSYS was promoted by software professionals, Mr. S Gopalkrishnan, Mr. K Dinesh, Nandan M Nilekani, Mr. S.D. Shibulal, Mr. N.R. Narayana Murthy & Mr. N.S Raghvan. The company is engaged in software development in the form of services, turnkey projects and products for the domestic and export market. The software development is targeted towards the distribution, banking telecommunication and manufacturing sectors worldwide.

1992 On April 21st the name changed in Infosys Technologies Private Limited and the registered office was moved to Bangalore. On June 2nd the company was converted into a Public Limited Company under the name Infosys Technologies Ltd.

1993 The company turned up with ISO 900 certification. 19,76,100 No. of equity shares of Rs. 10 each issued, subscribed and paid-up (15,84,000 shares to directors, promoters, 2,68,100 shares to employees of the company and 1,24,000 shares at a prem. of Rs 70 per to shareholders on right basis.)

68,600 shares reserves for allotment in preferential basis to employees of the company and group company (only 10, 3000 shares taken up). Balance 3,07,200 shares along with 58,500 shares not taken up by employees were issued to the public (all were taken up)

During the period company undertook to expand its activities by setting up a software technology park on 100% EOU. For this purpose Co. acquired 5 acres of land at Electronic city near Bangalore. To part finance the companys project for setting up a software Technology Park, company made a public issue of 13,76,000 equity shares of Rs. 10 each at a premium of Rs. 85 per share in February.

1994 During the year marketing offices were opened in San Francisco, Cincinnati, New York and Dallas. During the year company proposed to make a preferential issue of 7,50,000 warrants convertible into shares to the Infosys Technologies Ltd. Employees Trust to form the basis of employee stock offer plan. 33,52,100 no bonus equity shares issued in proportion 1:1 5,50,000 no. of equity shares of Rs 10 each allotted at a premium of Rs 440 per share to FIIS, mutual Funds and other on preferential basis. Of these some shares were forfeited.

1995 During the year the company established Yantra Corporation, a wholly owned subsidiary in USA investing US $ 5,00,000 in the equity of the said subsidiary.

1997 The Institute of Chartered Accountants of India awarded the Silver Shield for the Best Presented Accounts, amongst the entries received from the non-financial, private sector companies for the year 1995. The readers of the well-known Asia Money magazine have voted the company as Indias best-managed Company for the year 1996 Company also won several awards for export performance. In December, the Company announced its plans for an ADR issue up to US $ 75 million. The world economic forum selected Infosys as one of Indias most remarkable and rapidly growing entrepreneurial companies in November. 8008,600 bonus shares issued in propr, 1:1, 1,34,500 No. of equity shares at a prem. of Rs 90 per share allotted on conversion of warrants. 14,500 forfeited shares issued.

1998 During the year, the issued, subscribed and paid-up capital increased by Rs. 8,75,76,000 consequent to the issued of 7,49,000 shares of Rs 10 each, fully paid, to employees of the company and Employees Welfare Trust under the ESOP, and a bonus issue of 80,08,600 shares in the ratio of 1:1 to the members as of the record date. Of the total paid-up capital of Rs. 16,01,72,000 Rs 12,92,69,000 (81% of the paid up capital) has been issued as bonus shares. During the year the company received several AWARDS. The readers of Asia Money Magazine once again voted Infosys the best in strategy and Management from among the listed companies in India, and among the best in Asia, for the year 1996-97.

The Bangalore Stock Exchange rated the Company as the best Regional Company for all-round quality management and as a company which gives top priority to shareholder interests. The company is the first to receive this award. The Economics Times Awards for Corporate Excellence was won by Bangalorebased software giant Infosys Technologies of the year.

1999 Alpha Data, a leading information services company in the UAE, has tied up with Infosys Technologies to market and support banking software products from Infosys in the UAE. Infosys Technologies has taken the American Depositor Receipts (ADRs) route with the US public offering of 1,800,000 ADRs at each. The ADRs will represent 9,00,000 equity shares and will go public on march 11. Infosys is the first every India register company to be listed in the Nasdaq stock market in USA. Infosys Technologies Ltd chairman N R Narayana Murthy has been awarded the first ever Sir M Visvesvaraya Memorial Award, instituted by Federation of Karnataka chambers of Commerce and industry (FKCCI) to coincide with 138th Birthday of Sir M Visvesvaraya.

2000 The company proposes to increase its software professional strength to 2,400 from the present 1,200. The company has re-emerged as Indias second most valuable company, replacing the FMCG heavyweight, HLL.

Infosys has signed an MOU with the Sharjah Airport International Free Zone Authority to have a base there. Goldman Sachs has rated Infosys Technologies and HCL Technologies as market out performers and among the best quality names in the industry. The company issued on September 30, 667 no. of equity shares pursuant to the exercise of stock options by certain employees. Nortel Networks is joining hands wit the company to set up a Wireless centre of Excellence in Bangalore. The company has allotted 460 no. of equity shares of par value of Rs 5 per share to the Bankers Trust Company, New York. The Company has allotted an aggregate 500 equity shares of Rs 5 each to individual optioned pursuant to the exercise of the employees under the 1999 option plan, on receipt of payment of the subscription monies in respect of the said shares aggregating Rs. 20,32,525.

2001 Infosys Technologies has signed a MOU with the Andhra Pradesh Government for establishing a software development campus at Hyderabad. The Company is setting up its biggest software development centre in Bangalore. The company has allotted 100 equity shares of par value of 5 per share to the Bankers Trust Company, New York the depository to the companys ADS issue as underlying shares in respect of 200 ADRs to be issued and allocated to the purchasers. Infosys Technologies board has allocated 67,050 no. of equity shares at a par value of Rs 5 par to employees of the company.

The Board of Directors allocated an aggregate of 41,050 stock options exercisable for equity shares of par value Rs 5 per share to employees of the company, pursuant to the companys 1999 option plan. The company has informed the BSE that the company has received a disclosure from Emerging Markets Growth Fund Inc stating that they hold 34,03,880 No. of equity shares representing 5,15 percent of the paid up capital of the company. Infosys and TCS have emerged as the leading Indian software exporters during 200001 clocking exports worth Rs. 2,870.26 and Rs. 1,852.94 cr. Respectively.

2002 Receives Motilal Oswal Award for Wealth Creation for 1996-2001 Tops among IT exporters with exports of Rs 1900 cr in the period April-December 2001 Airbus Industries hires Infosys for wing Design. Records 35 per cent increase in the value of its brand to Rs. 7,257 cr as of Mrach 31, 2002 Infosys Tech bags prestigious Corporate University Exchange Excellence Award for 2002 NASDAQ selects Infosys as the best value reporter RBI permits 100% FII purchase in Infosys. Ties up with IB for knowledge sharing arrangement N R Narayana Murthy receives the Ernst & Young Entrepreneur of the year award for 2002 Company declares that it has won Most Admired Knowledge Enterprise (MAKE) award in the Asia region for 2002. Progeon issues, 4,375.000 shares to Citicorp.

2003-2004 Fortune names Narayana Murthy, Nandan Nilekani as Asias Businessmen of the year 2003 making them the first Indians to win the award. ICRA, the credit rating agency, gives CGR1 rating8 for the companys corporate governance practices, making it the first company in the country to get the highest rating for corporate governance. Launches ethics code to check financial frauds Infosys brand valued at RS 7,488 cr Wins Electronics & Computer Software Export Promotion Council (ESC) award for computer software and services sector. Business week ranks the company in the 74th place among the worlds top 100 best performing InfoTech companies making it the only Indian company in the list. Infosys Technologies has been allotted the highest governance and value creation (GCV) rating of CRISIL GCV Level 1. Signs an agreement to acquire 100% equity of Expert information Services Pty Ltd, Australia for A$ 31.0 million (US$22.9 million) The Board of Directors at its meeting held on December 20, 2003 have allotted 22,439 equity shares of par value of Rs 5/- to the optionees, pursuant to the exercise of the options granted to the employees under the companys 1999 stock option plan.

2005-2008 FMR Corp. and its direct and indirect subsidiaries and Fidelity International Limited (FIL) and its direct and indirect subsidiaries acquire 1,44,221 shares (0.22%). Their shareholding after the said acquisition is 33,58,318 shares (5.05%), Infosys completes five years on NASDAQ

Infosys becomes first Indian listed IT firm to net Rs. 1000 cr Indian Merchants Chambers (IMC) has announced that Infosys Technologies chairman NR Narayana Murthy is the winner of the IMCs prestigious Diamond Jubilee Award for eminent businessman of the year. Comes out with a bonus issue in the ratio of 3:1.

CORELATION BETWEEN MARKET PRICE AND DEVIDEND PER SHARE YEARS X (MARKET PRICE ) 2005 2006 2007 2008 2009 564 883 1306 1751 1721 6225 29 120 13 44 14 220 -681 -362 61 506 476 0 -15 76 -31 0 -30 0 463761 131044 3721 256036 226576 Y (DPS) (x-x-) (y-y-) (x-x-)2 (y-y)2 225 5776 961 0 900 -10215 -27512 -1891 0 -14280 -53898 (x-x-)(y-y-)

1081138 7862

R =r -0.58

As per our calculation, the correlation between Market value and dividend per share for the last 5 years is negative. But my observation says that market value of share is increasing in last 5 years which indicated company is a growth firm. And thus walter model applies.

3.4 Company History Reliance Textile Industries Ltd

1973 On 8th May the company was incorporated in Karnataka state as a public limited company under the name Mynylon Ltd. to manufacture synthetic blended yarns and fabrics, polyester filament yarn, polyester glass shells and colour TV picture tubes.

1975 On 28th June this company was converted into a public limited company. On 11th February 1966 a company by name of Reliance Textiles Industries Pvt. Ltd was incorporated in Maharashtra. It established a synthetic fabrics mill in the same year at Naroda in Gujarat. On 1st July, Reliance Textile Industries Ltd. was amalgamated with Mynylon Ltd.

1977 With effect from 11th march 1st the name of Mynylon Ltd was changed to Reliance Textiles Industries Ltd. The company manufactures synthetic blended yarns and fabrics polyester filament yarn polyester staple fiber chemicals and allied products color TV glass shells and color TV picture tubes. The Companys yarns are marketed under various brand names such as Texalit, Textron, Texlene, Poly dyed and Polytwist. The companys fabrics are marketed under the brand name VIMAL. On November Dhirajlal H Ambani and Natvarlal H Ambani along with some other existing shareholders offered for sale at par to the public. 28,20,000 equity shares of the company in order to get the shares of the company listed on the stock Exchange at Mumbai.

1979 During the year Sidhpur Mills co. Ltd which has an installed capacity of 38,368 spindles and 490 looms was amalgamated with the company. In terms of the scheme of amalgamation, the company was to issue and allot for every one equity share of Rs. 100 each of Sidhpur, 2 equity shares of Rs. 10 each and one bond of Rs 80 of the company. The company allotted a total of 1,12,000 No. equity shares of Rs 10 each and 35,00011% bonds of Rs 80 each to the shareholders of Sidhpur Mills.

1982 5,50,000 13.5% Pref. shares issued as Rights to equity share holders. 19,20,000 equity shares issued to debenture holders (Series III) as per the terms of that issue. 815 No. of equity shares allotted out of the Rights issue of 1981.

1983 111,56,741 Bonus equity shares issued in Propn. 3;5, 64,00,000 No. of Equity shares of Rs. 10 each issued in part conversion of Debs. (iv series ) on 30.9.1983. Of these, 24,00,000 shares issued as additional entitlement to debenture holders (iv series) on account of bonus issue.

1984 101,24,675 No. of Equity shares allotted conversion of non-convertible portion of debentures of series I, II, II and IV of the total value of Rs 7231.92 lakhs in Prop. 1:4. equity shares of Rs. 10 each for every Rs 100 of debentures (100,28,359 shares in 1984 and 96,316 shares in 1985) 53,33,333 No. of equity shares issued (Prem. Rs. 40

per share) on part conversion of E Series debentures as on 30.4.1985. rate of dividend on 13.5% pref. shares increased to 15% effective from 16.5.1984.

1985 The name of the company was again changed from Reliance Textiles Industries Ltd to Reliance Industries Ltd with effect from 27th June. On 30th September Devti Fibres Ltd became a subsidiary of the company. Trishna Investments and leasing Ltd. Reliance Industrial Investments & Holdings Ltd, Reliance Petro products Ltd also subsidiaries of the company.

1987 Three letters of intent were converted into industrial licenses. Subsequent to 30th June, all these industrial licenses were transferred to reliance Peotrochemicals, Ltd., a company incorporated as a subsidiary of the company. 689,65,480 No. of equity shares allotted (prem. Rs. 62.50) per shares) in conversion of G series debs. Out of which 660, 30,100 shares allotted in respect of earlier conversion of debs. 300,00,000 Rights shares than issued (prem Rs 50 per share; prop. 1:4) (all were taken up 14,60,000 additional shares were allotted to retain over subscription for rights. Along with the Rights issue, 14.00,000 No. of equity shares were offered to employees at a prem. Off rs 50 per share (under Employees Stock Option Scheme ) but only 1,11,695 shares taken up. The balance 12,88,305 shares allowed to lapse.

1990 During the year pursuant to the policy announced by Govt. regarding minimum economic scale, the company embarked upon expansion of PTA capacity from 1,00,000 tones to 2,00000 tones per annum. The project is being undertaken in technical collaboration with John Brown Engineers & Constructors Ltd. UK. During the year the company entered into a Memorandum of Understanding with West Bengal Industrial development Corporation Ltd. For setting up a join sector project for the manufacture of 15,000 tones per annum of polyester filament yarn. In December a joint sector agreement was entered into for setting up a new company under the name Reliance Bengal Industries Ltd. The technical collaborator for PFY and PSF was Dupont, US and for PTA, UOP Processors, US and ICI, UK

1991 A technical collaboration agreement for 10 years was entered into with stone and Webster Engineering Corporation USA for production of 4 lakh TPA of ethylene, 1,95 lakh TPA of propylene and 1.20 lakh TPA of mixed C4 stream. During the period company commissioned its 1,00,000 TPA Ethylene Oxide and Mono Ethylene Glycol plant at Hazira. In series H Debentures, 304,00,000 12.5% secured redeemable partly convertible debentures of Rs 150 each offered on Rights basis in the proportion 1 debenture: 5 equity shares held. Additional 45,60,000 debentures were allotted to retain over subscription. 15,20,000 debentures were offered to employees on an equitable basis. Only 15,00,000 debentures were taken up. The unsubscribed portion of 20,000 debentures was allowed to lapse. Rs. 55 of the face value of each debenture

was to be converted into 1 equity shares of Rs 10 each at a premium of Rs 45 per share at the end of 18 months from the date of allotment. Remaining Rs. 95 of the face value of each debenture was to be redeemed at par on the expiry of 10 years from the data of allotment. In series J Debentures 76,00,000 14% secured redeemable non-convertible debentures of Rs 150 aggregating to rs 114 cr attached with a detachable warrant, to the equity shareholders on rights basis in the proportion of one debenture for every 20 equity shares held. Additional 11,40,000 debentures were allotted to retain over subscription. The debentures of Rs 150 would be redeemed on the expiry of 10 years from the date of allotment. In Series K debentures 265,50,000 17.5% secured redeemable non-convertible debentures of Rs. 100 aggregating Rs 265.50 cr to the equity shareholders on Rights basis in the proportion of 1 debenture for every 6 equity shares held. These debentures would be redeemed on the expiry of 10 years from the date of allotment.

1992 With effect from 1st March Reliance Petrochemicals Ltd. was merged with the Co. as per the scheme of amalgamation, 1 equity shares of RIL was issued against 10 equity shares held in Reliance Petro Chemicals Ltd. 13% Pref. shares fully paid-up 183,99,935 No. of Equity shares allotted till date as again 92,00,000 Global depository shares 749,40,440 No. of equity shares allotted shareholders of erstwhile Reliance Petroleum Ltd, under Scheme of Amalgamation.

1993 On May 27th the company offered 92,00,000 GDS representing 184,00,000 shares. The company was awarded the medium sized discovered oil and gas fields for exploration and production. 364,60,000 No. of equity shares allotted on part conversion of H series debenture 100,05,586 No. of equity shares allotted again warrants issued. 3,16,667 shares allotted to SCICI on conversion of loans 103,16,027 shares allotted underlying, 127,66,000 GDS issued on 15th FEB 1994 of which 81,66,571 shares were yet to be allotted.

1994 Company issued 60,00,000 18% non convertible secured redeemable debentures of Rs 100 each on private placement basis with financial institutions.

1995 On January the company issued 82,50,000 14% secured redeemable non convertible debentures of Rs. 100 each on a private placement basis with financial institutions, banks / bodies corporate. On 23rd January the company allotted 600,00,000 14% secured redeemable nonconvertible debentures with detachable Warrants of Rs. 12.50 each. During June, the company allotted 995,75,915 No. of equity shares of Rs. 10 each to the erstwhile shareholders of Reliance Polypropylene Ltd (RPPL) and Reliance Polythylene Ltd (RPEL) in the ratio of 30 equity shares of Rs 10 each for every 100 equity shares of Rs 10 each held in RPPL and 25 equity shares of Rs 10 each of the company for every 100 equity shares of Rs 10 each held in RPPL.

Reliance Industries Ltd (RIL) has tied up with United Oil processing company of the US, for production of paraxylene at Jamnagar. In 1995-96, it entered the telecom industry through a joint venture with Nynex, US, RIL is Indias largest private sector enterprise, is a major player in the Indian petrochemicals sector 1996. During the same year company undertook to implement 3 independent power projects in separate entities with a total power generating capacity of 1331 MW at Patalganaga, Bawana and Jamnagar. 15% Pref. Shares redeemed. 1908 shares out of these meant for amalgamation issued.

1997 Reliance undertook to make significant investments in Reliance Petroleum Ltd., for setting up of the grass root refinery at Jamnagar, Gujarat 46,60,90,452 bonus equity shares allotted 7289149 No. of equity shares allotted at conversion of debentures and reissue of forfeited shares. The National Securities depository Ltd (NSDL) and Reliance Industries Ltd are embarking on a joint marketing effort to issue RIL bonus shares in the demat form. RIL was one of the first companies to join the depository and by issuing bonus shares through the demat forms; investors will be assured of clean securities. Around 57 lakh euro-convertible bonds of Reliance Industries Ltd. Were converted into equity shares ahead of the book-closure for the 1:1 bonus issue on November 29. Reliance Industries Ltd (RIL) founder and chairmn Dhirubhai Ambani was awarded the prestigious the deans medal by the Wharton School (University of Pennsylvania) at a glittering ceremony in Mumbai on 15th June.

Reliance Industries Ltd (RIL) has struck an understanding with the US based engineering firm Carter burgess Ltd to undertake projects in the road sector through the joint venture route. In the proposed joint venture, reliance will have the majority stake. 65,00,000 redemption pref shares of rs. 100 each issued.

1999 The company undertook the commissioning of its Jamnagar Petrochemicals complex. Reliance Industries Ltd is currently setting up a Rs 5,550 crores petrochemical complex at Jamnagar. Once again Reliance Industries Ltd (RIL)is in the international limelight. RIL been named as one of the worlds 100 best-managed companies for the year 1999 by industry week (IW), a leading US magazine. During 1999-2000, the company competed its integrated Jamnagar complex, in a record period of less then 3 years.

2000 Reliance has been ranked the second largest produced of POY and PSF in the world, and the larges polyster manufacturer in India, with a market share of 51%. Reliance is setting up a new venture for e-commerce related services and has roped in National Stock Exchanges head of market operations, derivatives, IPO and membership Ashishkumar Chauhan for piloting the new project. Reliance Industries Ltd. Wanted to buy back shares up to Rs 1,100 cr at rs 303 The company has informed that, Reliance Power Ventures Ltd., a wholly owned subsidiary of the company, propose to acquire an aggregate of 2,75,45,133 fully paid

equity shares of BSEs of face value of Rs. 10 each at a price of Rs. 234/- per fully paid up equity shares. Issue of equity linked warrants under Employees Stock Option Plan. The board has issued 5,26,87,851 equity-lined warrants under the ESOP in accordance with the resolutions passed at the companys 26th AGM. Credit rating agency Crisil has assigned the highest safety rating of AAA to the Rs 500 crore non-convertible debenture issue of the company. Reliance holds a 30% interest in an unincorporated joint venture with Enron and ONGC, to develop the proven Panna, Mukta and Tapti (PMT) oil and gas fields. Enron has a 30% share and ONGC the balance 40% share.

2001 Fitch Ratings India Ltd. Has assigned Ind AAA rating to the Rs 5000- crore nonconvertible debentures of the company Reliance industries has raised its stake in Larsen & Turbo from 0.38 percent to 2.87 percent. Reliance is the worlds third largest producer of paraxylene (PX), and the worlds fourth largest producer of PTA. Within the country, reliance is the larges manufacturer of PX, PTA and MEG, with a market share of over 80%. Reliance is the largest producer of polymers in the country with a market share of 52%. Reliance has a capacity of nearly a million tones per year of polypropylene (PP). 400,000 tonnes per year of polythelene (PE) and 300,000 tonnes per year of polyvinyle chloride (PVC). In November 2001 Reliance Industries sold its just over 10% equity stake in Larsen & Toubro the second largest player in the cement industry, to Grasim Industries for Rs.

766.5 cr. The divestment of the L& T stake is in consonance with its declared objectives of unlocking value from its investments, in the interests of maximizing overall shareholder value. In January 2002, Reliance Petro investments have become a subsidiary of the company, while Reliance Life Insurance Company and Reliance General Insurance Company have ceased to be subsidiaries of the company. In March 2002, the Board approved the proposal for amalgamation of Reliance Petroleum Limited (RPL) with the company. The proposed scheme of Amalgamation provided that the amalgamation will take effect from the appointed date i.e. April 1, 2001. All assets, liabilities and obligations of RPL will vest in the company w.e.f. from the said appointed date. One equity share of the company will be allotted for every eleven equity shares of RPL held. Shareholders of Reliance Petroleum Ltd on April 15 approved the merger of RPL with Reliance Industries Ltd at a meeting held in Jamnagar and convened under the orders of the Gujarat High Court. Reliance Industries acquires 26% state & management control in Indian Petrochemicals Corporation Ltd. (IPCL) by paying Rs 1490.84 cr to Government of India.

2003 Shuts down the aromatics plant at Jamnagar, Gujarat companys Hazira manufacturing unit gets IMC-Bajaj quality award 2002 Anil Ambani appointed as BSES MD Reduces stake in BSES from 55% to 49.5% and BSES ceases to be subsidiary of the company due to the disinvestment

Foreign institutional investors (FIIs) convert 24 million shares of the company into global Depository Receipts (GDRs) Oil discovered in RLs exploration block 9 in Yemen in which the company holds 20% shares Anil Ambani, Vice Chairman & Managing Director, voted as MTV Youth Icon of the year. Mukesh Ambani chairman and managing director (CMD), donates

$2million to health programs of the international federation of Red Cross (IFRC) and Red Crescent Societies. Reliance exhorts NTPC Kayamkulam plant transplantation to Kakinada

2004 Reliance Jamnagar refinery voted best among 50 refineries worldwide Gujarat gives away Gujarat Garima Awards to Tata, Ambani Reliance Industries Limited (RIL) has increased the capacity of its Jamnagar refinery to 33 million tones from 30 million tones. Mukesh Ambani ranks 40th in the world business leaders Reliance joins hands with Gail for Indo-Iran natural gas pipeline project Reliance Industries countrys largest private sector company, has surged ahead of global players after it posted a net profit of more than $1 billion in 2003-04 RIL chairman wins Asia Society Leadership award

2005 Reliance Industries Ltd was awarded the international Refiner of the year 2005 at the World Refining and Fuels Conferences awards ceremony held in San Francisco on March 10, 2005. Reliance Industries wins annual 2005 ASTD Best Awards from American Society for Training & development. Reliance Industries wins two National Energy Conservation awards Reliance industries bags National Awards for R & D Efforts in industry 2005

2006

RIL commences the setting up of a new export-oriented refinery through its subsidiary, Reliance Petroleum Limited (RPL). The refinery will have a total atmospheric distillation capacity of approximately 580,000 barrels per stream day with a Nelson Complexity of 14.0 and an integrated polypropylene plant with a capacity of 0.9 Million TPA. The capital cost of the RPL project is estimated at Rs 27,000 crore (approximately US$ 6 billion). RPL completes its US$ 1.2 billion Initial Public Offering of equity shares which received an overwhelming response across different classes of investors.

Reliance's debt ratings from S&P and Moody's pierce India's sovereign ratings. Reliance becomes India's first private sector enterprise to cross US$2 billion profit mark.

2007 Value creation through integration - A landmark merger of Indian Petrochemicals Corporation Limited (IPCL) with Reliance Industries Ltd. (RIL) has been completed.

Reliance Retail entered the organised retail market in India with the launch of its convenience store format under the brand name of Reliance Fresh.

The worlds largest polyester expansion project commissioned during the year. We brought a Polyester capacity of 550 KTA on stream at globally competitive costs in a record time of eighteen months. With this expansion, our polyester capacity has been augmented to 2 million tonnes per year. Subsequently, Reliance now have 4% of global polyester capacity and 6% of global production.

During the year, we expanded our polypropylene (PP) capacity by 280 KTA at Jamnagar that increased the combined capacity to 1,710 KTA. With this expansion, we now have 3.5% of global PP capacity and 3.6% of global PP production.

2008

During the year, Reliance signed an agreement to acquire certain polyester (capacity) assets of Hualon, Malaysia.

In the Refining & Marketing business, Reliance took over majority control of Gulf Africa Petroleum Corporation (GAPCO) and started shipping products to the East African markets.

Reliance also signed MoU with GAIL (India) Limited to explore opportunities of setting up petrochemical plants in feedstock rich countries outside India.

Reliance Petroleum Limited (RPL) continued the second year of implementation of its refinery project with an overall project progress of 90%.

During the year, Reliance Retail Limited (RRL) continued its rollout of stores across various verticals and formats. Reliance Retail today operates over 590 stores in 57 cities, spanning 13 states, with over 3.5 million square feet of trading space.

2009.

RPL merger with RIL: Value creation through scale and synergies - The merger of Reliance Petroleum Limited (RPL) with Reliance Industries Limited (RIL) has enabled seamless integration of operational scale and financial synergies that existed between the two Companies. Assets and liabilities of RPL have been transferred to RIL with effect from 1st April 2008, as per the approval granted by the Hon. High Courts of Mumbai and Gujarat. Shareholders of RPL received 1 share of RIL in lieu of every 16 shares of RPL held by them, as per the scheme of merger. Accordingly, 6.92 crore new equity shares of RIL have been allotted to the shareholders of RPL.

RIL joins the league of global deepwater oil and gas operators - RIL commenced production of hydrocarbons in its KGD6 block in the Krishna Godavari basin with the production of sweet crude of 420 API. The production of oil in KG-D6 was commissioned in just over two years of its discovery, making it the worlds fastest green-field deepwater oil development project.

RELIANCE INDUSTRIES: CORELATION BETWEEN MARKET PRICE AND DEVIDEND PER SHARE YEARS X (MARKET PRICE ) 2005 2006 2007 2008 2009 410 551 681 1082 1816 4540 5 6 8 21 0 40 -498 -357 -227 174 908 0 -3 -2 0 13 0 8 248004 12744 51529 30276 824464 9 4 0 169 0 Y (DPS) (x-x-) (y-y-) (x-x-)2 (y-y)2 1494 714 0 273 0 2481 (x-x-)(y-y-)

1281722 182

R = 0.17

As per our calculation, the correlation between market value and dividend per share for the last 5 year is positive less than 0.50. But my observation says that market value of shares is increasing in the last 5 years which indicates, company is a growth firm.

3.5 Company History State Bank of India

On 1st July State Bank of India was constituted under the State Bank of India Act 1955, for the purpose of taking over the undertaking and business of the imperial Bank of India. The imperial Bank of India was founded in 1921 under the imperial Bank of India act 1920. The Bank transacts general banking business of every description including, foreign exchange, merchant banking and mutual funds.

1959 On September State Bank of India (Subsidiary Bank) Act was passed. On October State Bank of Hyderabad become the first subsidiary of SBI.

1960 During this period, State Bank of Jaipur, State Bank of Bikaner, State Bank of Indore, State Bank of Travancore, State Bank of Mysore, State Bank of Patiala and State Bank of Saurashtra became subsidiaries of the bank.

1962 The Bhor State Bank Ltd was Amalgamated with the Bank bring the total number of minor State associated banks so amalgamated to five. A scheme for amalgamation of the Bank of Aundh Ltd. Was also approved. On 20th August, the Unit Bank Ltd. Chennai was taken over by the Bank.

1963 In October Branch in London become bankers to the Indian High Commission, thereby taking over a function till then performed by the office of RBI. Of the other business transacted by the Branch, an important aspect was medium term loans mostly to Indian shipping companies.

1969 On November 8th the Bank of Behar Ltd was amalgamated.

1972 A merchant banking division was set up in the central office to cater to promotional needs of the corporate sector.

1977 During the year bank introduced the Perennial Pension Plan Scheme under which if the depositors make a regular monthly payment of a fixed amount of a period of 84 to 132 months, they become eligible from the 86th and 134th months respectively for getting a monthly pension of predetermined amount forever. In order to meet all the developmental needs of the villages including their social and cultural needs, the bank launched an integrated rural development program, aimed at not only covering the credit needs of agriculture and agricultural activities and village industries but also housing and social activities.

1980 Bank introduced the cash certificate Scheme under which deposit certificate are issued for a fixed period on payment of the issued price specified for the respective maturity period and the face value corresponding to the issue price plus interest compounded at quarterly intervals is paid on maturity. The certificates are issued for the face value of Rs 100, Rs. 1000, Rs. 10,000 and Rs 50,000 maturing after 29,65,84 and 120 months.

1982 The Non-Resident Investment Cell was set up, which had streamlined the working operations of the non-resident investment sections at important centers.

1983 SBI launched self employment scheme, for providing self-employment to educated unemployed youth, Educated unemployed youths are encouraged to undertake selfemployment ventures in industry, services and business.

1985 During the year, company set up a data bank of sick units available for taken over by healthy units. With effect from 26th August the Bank of Cochin Ltd with 108 branches was also amalgamated with the Bank (i) All shares in the Capital of the imperial Bank of India were vested in the RBI. The SBI was registered with an Authorized capital of Rs. 20 cr. And an issued and paid up capital of rs. 562, 50, 000 divided into 562,5000 shares of Rs 100 each

(ii)

Every person who on the 30th June 1955 was registered as a holder of shares in the imperial Bank of India was paid by the Reserve Bank of India. 44,37,500 No. of shares issued at a premium of Rs. 160 per share.

1986 At the end of the year 324 sick units with an outstanding of Rs 1069 cr were assisted. Of these, 107 units were considered viable and 60 from them were placed under regular nursing program. On 1st August a new subsidiary named SBI Capital Market was functioning independently took up leasing business and certain other new services. 100,00,00 No. of shares issued at a prem. of Rs. 160 per share.

1987 In terms of deployment, the advances portfolio of overseas offices rose to Rs 5767 cr, investments in inter-bank money markets and also in prime securities amounted to Rs 2670 cr by the end of the year.

1988 Also a scheme to develop entrepreneurship among woman under the name Stree Shakti was launched. Several concessions in respect of margin and rate of interest have been built into package. Three pilot programs were launched at Chennai, Calcutta, and Hyderabad. The bank sponsored 30 RRBs covering 66 divisions in the country. 74 branches were opened raising the branch network to 2306.

1989 During the same period SBI in association with Morgan Stanley Asset Management inc, of USA launched the India Magnum Fund.

1990 New products launched during the year included a Regular income Scheme, offering an assured return in excess of 12% and the first Pure Growth Scheme aimed at capital appreciation. A second offshore fund of US $12 million called Asian Convertible and Indian Fund was launched in association with Asian Development Bank, Manila. As on 31st March, SBIMF had over 340,000 India investors and about Rs 475 cr of investible domestic funds. 50,00,000 No. of shares issued at a prem. Of Rs 160 per share. 1991 during February the bank set up a new subsidiary called the SBI Factors and Commercial Services Pvt. Td for rendering factoring services to the industrial and commercial units in Western India.

1992 The bank sponsored 30 RRBs with a network of 3189 offices covering 102 backward and under banked districts of the country. A sum of Rs. 15.25 cr was contributed towards the share capital of the RRBs.

1993 During December, the bank issued 124,000,000 equity shares of Rs 10 each for cash at a premium of 90 per share of which 245,00,000 shares each were reserved for

allotment on a preferential basis to Indian financial institutions and Indian Mutual Funds. Balance issued to the public. Simultaneously it cam out with another issue of 50,00,000 12% unsecured redeemable floating rate bonds in the nature of promissory notes of the face value of 1000 each. Oversubscription upon a further amount of Rs 500 cr ( in all Rs 1000 cr) was to be allowed. The face value of each bond would be redeemed at par at the expiry of 10 years from the date of allotment. In the event that the State Bank decides to exercise tis option to call up the bonds they would be redeemed at the rate of 5% at the end of 5th year, at 3% at the end of 7 the year and 1% at the end of 9th year. It was proposed to issue 1200,00,000 right equity shares of Rs. 10 each at a premium of Rs. 50 per share in the proportion of 3:5. also another 120,00,000 equity shares of Rs 10 each were to be issued at a premium of RS 50 per share to employees on an equitable basis. 250 sick units with the bank were referred to the BIFR including 31 public sector units. Approved rehabilitation packages being implemented in 85 units and 41 have been recommended to be would up. The bank continued to be appointed as the operating agency and rehabilitation packages were submitted to BIFR in 48 cases. Equity shares subdivided, 1418,50,000 No. of Equity shares of Rs. 10 each issued at a prem. of Rs 90 per share to the public. Another 1319,78,726 shares of RS 10 each offered at a prem. of RS 90 per shares on Rights basis and to employees.

1994 358 sick units with the bank were referred to the BIFR including 55 public sector units. Approved rehabilitation packages implemented in 87 units. 1,80,463 No. of shares kept in abeyance were issued.

1995 351 sick units with the bank were referred to the BIFR including 66 public sector units. Approved rehabilitation packages implemented in 112 units. 683 No. of shares kept in abeyance were allotted.

1996 On 3rd October the Bank issued 261,45,000 GDRs amounting to 5,22,90,000 equity shares. 1 GDR is issued to 2 equity shares. The issue price of GRD was US $ 14.15 per GDR.

1997 Shares issued to employees of the bank bearing distinctive number 46,26,00,000 to 47,46,00,000 will not be good delivery. The rights issue was for 12 cr equity shares at a premium of Rs. 50 aggregating Rs. 720 cr in addition to a further issue of 1.2 cr equity shares of Rs. 10 at a premium of Rs. 50 aggregating Rs 72 cr for State bank employees. The price of the right had been Rs. 50 per share. After SBI capital markets, Manila-based Asian Development bank will pick up 15 per cent equity stake in the new stock broking subsidiary of the State Bank of India to be made operational by mid-1997. the balance 85 per cent will be subscribed to by SBI. SBI Securities Ltd the 100 percent stock broking subsidiary of SBI has recently received the much-awaited letter of incorporation from the Registrar of Companies. Following this, both SBI and ADB will pick up their respective shares in the new stock broking firm. SSI will have an equity base of Rs 50 cr.

State Bank of India (SBI) signed an agreement with the National Securities Depository Ltd (NSDL) for dematerialization of its shares. Besides, SBI has also become an equity stake holder in NSDL to the extend of 4.76%

1999 State Bank of India (SBI) has bagged the mandate to syndicate the $120 million loan for the National Thermal Power Corporation (NTPC). The state Bank of India (SBI) proposes to take up the life insurance and general insurance business once the sector is opened up. The State Bank of India (SBI) has signed up with central Depository Services (I) (CDSIL) for the dematerialization of its shares. SBI shares have already been admitted as security with National Securities depository (NSDL). Besides, SBI also has a stake (Rs. 10 cr) in the equity of CSDL. According to an agreement entered into with the development bank, State Bank of India (SBI) was to reduce its stake in its investment banking subsidiary to below 50 percent by March 31 The State Bank of India (SBI) has entered into an agreement with Moodys Inventory Services and Icra, under which SBI will pick up Moodys 11 per cent stake in Icra in case the global rating firm wants to get out of its investment in India.

2000 The Bank has proposed to come out with an issue under private placement of unsecured, non-convertible, subordinated bonds in the nature of promissory notes of RS 1 lakh each aggregating Rs. 600 cr with an option to retain oversubscription of up to Rs 40 cr.

The Bank launched the Metal (Gold Loan Scheme in Coimbatore. This is the third scheme to be introduced by SBI. SBI is also forming a subsidiary SBI Gold and Precious Metals Pvt. Ltd with 50 per cent equity participation. State Bank of India Mutual Fund has launched the Magnum Gilt Fund, dedicated to investing in government securities.

2001 State Bank of India has slashed the interest rate on home loans by 0.5 per cent to 12 per cent, effective from September 15 In a significant move, the State Bank of India has decided to distance itself from its subsidiaries SBI Capital Markets, SBI Gilts, SBI AMC and State Bank of Credit and Commerce International. They will have the autonomy, independent chairmen and external executives at the senior management level at market-related salaries. At present, the SBI chairman is the ex-officio chairperson of all the subsidiaries, including the associate banks. VRS implemented in which around 21,000 employees, including officers, were permitted to retire. The Bank has crossed another milestone by making a successful foray into insurance. SBI is the only Bank to have been permitted a 74% stake in the insurance business. The Banks insurance subsidiary, SBI life Insurance Company, a joint venture with the Bank holding 74% and Cardiff S.A., the joint venture partner, the balance 26%, was incorporated to undertake life insurance and pension business. Cardif S.A. is a wholly owned subsidiary of BNP-Paribas, which is the largest bank in France and one

of the top ten banks in the world. Cardif S.A is the largest bancassurance company in France.

2002 In order to reduce risk and develop a transparent and active debt market in general and government securities market in particular, the Clearing Corporation of India Ltd, has been set up in Mumbai with the Bank as the chief promoter. State bank of India has informed BSE that the Bank has decided to close SBI Securities Ltd (SBISL0, s subsidiary of the Bank, following a Directive in this regard from the RBI. SBI groups total profit identified at rs. 3354 cr in 2002 SBI Cards and Payment Services Private Ltd, the credit card subsidiary of the State Bank of India, introduces two new schemes recently SI Advantage Card to the Banks fixed deposit customers and SBI International Card for its home loan borrowers.

2003 Increases its equity stake in Discount and Finance House of India Ltd (DFHIL) to 51% increases its equity State in DFHIl to 55.30% Orders for 1500 ATMs with NCR Corporation NPA (None Performing Assets) slashed to 4.5 pc, writes off Rs. 4000 crore worth of assets. Forays into stock market Stock price crosses the Rs 400 mark for the first time since listing on BSE Plans a new scheme to attract resurgent India Bonds (RIB)

Inks tow important agreements with its employees unions and officers associations. According to the contract SBI staff will be having no rights to interfere in banks computerization plans. SBI joins hands with LIC to dentify long-term investment proposals for LIC

2004-2005 The government has chosen State Bank of India (SBI) for channelizing government credit to other countries which runs into billions of dollar. Buys 10% stake in Multi commodity Exchange of India Ltd. (MCDEX) for Rs 2.1 cr.

2006-2007 SBI signed a memorandum of understanding with small industries development bank of India for co-financing small and medium enterprises in Andhra Pradesh, Tamil Nadu, Uttar Pradesh, Jammu & Kashmir, Jharkhand, Delhi and Bihar. State Bank of India and Crisil has signed a memorandum of understanding under which latter will assign ratings to small-scale industries that are borrowers of SBI. NSIC join hands with SBI to offer credit to SSI State Bank of India has roller out a micro insurance scheme Grameen Shakti, for its self help group (SHG) members. The product was launched on November 26 at the Tamil Nadu Agricultural University. The bank is hopeful to cover at least five lakh SHG members by December 31. The company has issued rights in the ratio of 1:5 at a premium of Rs 1580/- per share.

CORELATION BETWEEN MARKET PRICE AND DEVIDEND PER SHARE YEARS X (MARKET PRICE ) 2005 2006 2007 2008 2009 415 602 773 926 1267 3985 8.5 11 12.5 14 14 60 -382 -195 -24 129 472 -3.5 -1 0.5 2 2 15924 38025 576 16641 222784 423950 Y (DPS) (x-x-) (y-y-) (x-x-)2 (y-y)2 12.25 1 0.25 4 4 21.5 1337 195 -12 258 944 2722 (x-x-)(y-y-)

R = -0.90

As per our calculation, the correlation between Market value and dividend per share for the last 5 year is positive and more than 0.50. but our observation says that market value of shares is increasing in the last five years which indicates, company is a growth firm.

4. CONCLUSION

The market price of the share of the company depends on many factors like dividend payout, demand and supply of securities, government policies, financial position of the company, and activities of financial institutions etc. therapeutically increase in dividend payout may positively influence market price of the share of the company. So there is a linear relationship between dividend and market price. But, the analytical study shows that the linear relationship does not always exists, i.e. higher the dividend, higher the market price of the share does not always hold. From the study it is evident that the market price of the share is a reflection of many factors and dividend is but one of the many factors that influence the market price. Even though the dividend payment increase market price sometimes falls. It is difficult to identify effect of dividend in short run but the long run effect on share price cannot be underestimated.

5.

BIBLIOGRAPHY

y y y y y

Financial Management by Prasanna Chandra. www.bseindia.com www.nseindia.com www.google.com www.moneycontrol.com

visit to : y y Ahmedabad Management Association, Vastrapur, Ahmedabad S.D. School of Commerce, Gujarat University, Ahmedabad